Generally,deductions for additions to reserves for estimated future costs (e.g. ,an allowance for estimated warranty costs)are not allowed for Federal income tax purposes because allowing the deduction would:
A)Violate the of claim of right doctrine.
B)Violate the economic performance requirement.
C)Result in a mismatching of revenues and expenses.
D)Result in deducting future costs that cannot be accurately estimated.
E)None of the above.

Question

Quizplus · Accepted Answer

The economic performance requirement states that a deduction can only be taken when the obligation for payment has been performed. In the case of estimated future costs, the obligation has not yet been performed and therefore, the deduction cannot be taken until the actual cost is incurred. This prevents a mismatching of revenues and expenses and ensures that only actual, rather than estimated, costs are deducted.

Generally,deductions for Additions to Reserves for Estimated Future Costs (E